Thursday, February 9, 2012

Can someone else pay my legal fees for my bankruptcy?

If you are facing financial difficulties, one of the biggest hurdles is coming up with the retainer for your bankruptcy attorney to represent you through the preparation and submission of your bankruptcy case.  For a fortunate few potential clients, they will have family and friends in a position to pay their attorney on their behalf.  Before you accept money from a family member for your bankruptcy, or enlist the help of friends to pay for your attorney, it is important to know the potential pitfalls of doing so.

Under the means test guidelines required to file Chapter 7 bankruptcy, or used to determine the plan commitment period for a Chapter 13 bankruptcy, the court will consider all income received by the debtor in the six months immediately before filing “from all sources”.  This means that if you received money from another source with the intention of filing bankruptcy, the funds you received will be considered income received by the debtor during the applicable income inclusion period. 

Depending on the level of your current income, and the amount of assistance you receive with your legal fee, the additional contribution conceivably may raise your annualized income as calculated for means test purposes above the allowable limits, and disqualify you from filing a Chapter 7 bankruptcy, or require that you repay your creditors with a monthly payment for 5 years instead of only 3. 

Even if the assistance received was not enough to render you ineligible for Chapter 7, it still must be disclosed to the bankruptcy Court, both on the means test form (Official Form B22A) and on the Disclosure of Compensation of Attorney for Debtor.  The Attorney Disclosure is a document filed with the Court and reviewed by the trustee to look at the amount charged by the Attorney to represent you in the case, some specifics about the terms of your representation, and the source of the funds.  If the information provided for the means test does not match the information provided on the Attorney Disclosure, the trustee may seek to dismiss your case, or at the very least, look at your case with an undue level of scrutiny.

1 comment:

  1. Your average income for the six months is used regardless of whether you've lost your job recently or had a pay cut. Therefore, for some people, the average income might be higher than their actual income, which could hurt them in light of the new bankruptcy laws.


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